The document provides information about bad debts, provision for doubtful debts, and related journal entries in accounting. It discusses how bad debts are an expense recorded by debiting the bad debts account and crediting the debtors account. Provision for doubtful debts complies with the accounting concept of prudence by anticipating possible losses through a provision. The document also includes sample questions, exercises, and formats for related accounting entries and financial statements.
The document provides information about bad debts, provision for doubtful debts, and related journal entries in accounting. It discusses how bad debts are an expense recorded by debiting the bad debts account and crediting the debtors account. Provision for doubtful debts complies with the accounting concept of prudence by anticipating possible losses through a provision. The document also includes sample questions, exercises, and formats for related accounting entries and financial statements.
Original Description:
Accounting IGCSE. Definitions and formulas regarding bad debts
The document provides information about bad debts, provision for doubtful debts, and related journal entries in accounting. It discusses how bad debts are an expense recorded by debiting the bad debts account and crediting the debtors account. Provision for doubtful debts complies with the accounting concept of prudence by anticipating possible losses through a provision. The document also includes sample questions, exercises, and formats for related accounting entries and financial statements.
The document provides information about bad debts, provision for doubtful debts, and related journal entries in accounting. It discusses how bad debts are an expense recorded by debiting the bad debts account and crediting the debtors account. Provision for doubtful debts complies with the accounting concept of prudence by anticipating possible losses through a provision. The document also includes sample questions, exercises, and formats for related accounting entries and financial statements.
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IGCSE Accounting
Manarat Ahmed
Course Instructor :
BAD & DOUBTFUL DEBTS
Bad debts : It is the amount of money that the debtors cannot pay due to insolvency or any other reason. It is an expense for the business. Provision for doubtful debts : It is a provision which is made for debts which may or may not be collected from the debtors. It acts as a future forecast for the business. Bad debts recovered : It is the debt which was previously written off but now recovered. Journal entries : i) To record bad debts : Bad debts -Dr. Debtors-Cr. ii) To record bad debts to profit and loss a/c : Profit and loss Dr. Bad debts Cr. Dr. Cr. Dat e give n
Details Debtors (i)
*** ***
Dat e last
Bad debts A/C
Details
Profit and Loss (ii)
*** ***
Q. With which accounting concept does the creation of a provision for doubtful debts comply? Ans. Prudence (conservatism) Prudence concept anticipates possible losses that the business might suffer rather than calculating overstated profits. It is important because it leads to the preparation of true and fair values of accounts which will be required by decision makers for evaluating financial statements. Methods to encourage debtors to make payments quickly: 1.Cash discounts.*** However, allowing cash discounts will cause a fall in revenue and, hence, liquidity of the business falls. 2.Charge interest on dues. However, this might discourage the debtors even more to make payments within time. 3.Stop providing goods on credit. However, this might discourage some customers to carry on business anymore as they are dependent on credits. 4.Take legal action. However, taking legal support might increase the expense for the business. Bad and Doubtful Debts | 1
FORMATS : Dr. Cr. Da te Las t dat e Las t dat e
Provision for doubtful debts A/C
Details
Profit and loss A/C
(balancing figure +decreased amount)
***
Balance c/d
***
Dat e 1st date
Details
Balance b/d
***
Last date
Profit and loss A/C
(balancing figure + increased amount)
***
1st date
Balance b/d
***
iii)To record bad debts recovered:
Debtors A/C- Dr. Bad debts recovered A/C- Cr. iv)To transfer bad debts recovered to Bad debts recovered A/C- Dr. Profit and loss A/C- Cr. Dr. Cr. Da Details
te Las Profit and loss A/C *** t ***
*** ***
profit and loss A/C:
Bad debts recovered A/C Dat e give n
Other formats:
Details
Debtors
*** ***
Profit and loss A/C
Details
Gross profit Add decrease in provision for doubtful debts Add bad debts recovered Less expenses: Bad debts Increase in provision for doubtful debts
*** *** *** ***
*** *** (***) ***
Net profit Balance sheet (extracted)
Bad and Doubtful Debts | 2
Details
Current assets: Debtors Less provision for doubtful debts (Balance c/d)
*** (***) ***
Points to remember :
Provision for doubtful debts are simply ESTIMATES.
Bad debts = expense for the business Increase in provision = expense for the business Decrease in provision = income for the business Bad debts recovered = income for the business Profit and loss is the balancing figure for the provision for doubtful debts account Balance c/d is the amount to be deducted from debtors in the balance sheet Other formulas: Calculation of % of provision for bad debts
Balance c /d of provision for bad debts
x 100 Net debtors
Bad debts Exercises
Problem 1 : Debtors during the year 6000
% of provision
2002
Bad debts during
the year 423
2003
510
7000
10
2004
604
7750
10
2005
610
6500
10
10
****there has been a bad debts recovered of 1200 from Steyn at 31Dec. 2004 From the above info prepare :
bad debts account for four years
provision for bad debts account for four years bad debts recovered account profit and loss account for 2004 balance sheet (extracted)for 2004 , 2005
Bad and Doubtful Debts | 3
Problem 2 :
2006
Bad debts during
the year 420
Debtors during the year 6500
% of provision 5
2007
969
7500
2008
123
3000
2009
456
3500
****there has been a bad debts recovered of 200 from Anthony at 31Dec. 2008 From the above info prepare :
bad debts account for four years
provision for bad debts account for four years bad debts recovered account profit and loss account for 2008 balance sheet for 2008 , 2009
